The Kenya Bankers Association (KBA) has officially submitted its Banking Sector Proposals for the Fiscal Budget 2026/27. They have specific recommendations for tax reforms and legislative amendments designed to restore purchasing power, boost economic growth, and streamline tax administration.
Central to the proposal is a shift away from heavy taxation on labor, which the KBA argues has stifled domestic consumption and placed an undue burden on both employees and employers.
1. Overhauling PAYE Tax Bands
The Current Landscape
Since the Finance Act 2023, Kenyan taxpayers have faced a steep progressive tax structure. Combined with the 1.5% Affordable Housing Levy, the 2.75% Social Health Insurance Fund (SHIF), and rising NSSF contributions, real wages in Kenya have declined by approximately 10.7% according to 2025 data.
Currently, the PAYE rates stand at:
- First Ksh. 24,000: 10%
- Next Ksh. 8,333: 25%
- Next Ksh. 467,667: 30%
- Next Ksh. 300,000: 32.5%
- Above Ksh. 800,000: 35%
The Banking Industry Proposal
The KBA recommends a significant restructuring of these bands to broaden the middle class and cap the highest rate at 30%, aligning personal income tax with the corporate tax rate. The proposed structure is:
| Income Band | Proposed Rate |
| First Ksh. 30,000 | 10% |
| Next Ksh. 20,000 | 15% |
| Next Ksh. 50,000 | 20% |
| Next Ksh. 300,000 | 25% |
| Above Ksh. 400,000 | 30% |
Additionally, the KBA proposes increasing Personal Relief from Ksh. 2,400 to Ksh. 3,000 per month.
With real wages having dropped 12% over the last five years due to inflation and tax pressure, these changes are intended to:
- Strengthen Purchasing Power: Putting more money back into the pockets of households to stimulate demand.
- Support MSMEs: Improving the repayment capacity of borrowers, thereby expanding credit access for small businesses.
- Regional Competitiveness: Ensuring Kenya remains an attractive destination for regional labor and talent.
2. Streamlining WHT and WHVAT Remittance
The Finance Act 2023 introduced a requirement for agents to remit Withholding Tax (WHT) and Withholding VAT (WHVAT) within five working days of payment. The banking sector describes this timeline as “onerous,” noting that it has forced institutions to hire extra personnel solely to manage the frequent filing cycles and avoid heavy penalties.
The KBA proposes an amendment to Section 35 (5) of the Income Tax Act (ITA). The proposal seeks to shift the deadline back to a monthly cycle:
“Where a person deducts tax under this section he shall, on or before the 5th day of the month following the month in which the deduction was made…”
The Justification
- Operational Efficiency: The 5-day window is a strenuous administrative burden that provides little added value to the state while increasing compliance costs.
- Protecting MSME Cash Flow: Currently, many large taxpayers delay payments to suppliers to avoid the constant 5-day filing cycle. Reverting to a monthly filing would encourage timely payments, improving the working capital of small-scale suppliers.